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Gain wealth from homeownership?

By Judy Martel · Bankrate.com
Wednesday, March 2, 2011
Posted: 9 am ET

Conventional financial wisdom used to champion homeownership as one of the paths to wealth. Owning a piece of the American Dream was considered to be a solid and safe investment in your financial future. It was also a way of diversifying your financial portfolio, acting as a hedge against stock holdings. In previous economic downturns, that belief held true -- during stock market dips over the past two decades the housing market mostly continued to rise.

Is homeownership a path to wealth?

Is homeownership a path to wealth?

But the housing market crash that led the latest recession turned conventional wisdom around, and left many wondering if real estate was a good investment after all. The stock market has recovered from its lowest level in March 2009 much more quickly, but the latest quarterly results from the National Association of Realtors survey reveal a housing market that is still stagnant -- and dropping in many areas. And foreclosures are by no means limited to the average person. The rich and famous have proven just as susceptible, and that increased publicity doesn't help those who are hesitant to buy.

But there's more to it. We may be witnessing a shift in perception when it comes to the new age of homeownership. As an article in the Los Angeles Times points out, fewer working-age people see a home purchase as a safe investment, according to surveys by Fannie Mae and Harris Interactive. Real estate advocates see this as a temporary trend, but some psychologists point out that a new generation of buyers is skittish about putting down roots when their careers often demand frequent relocation. Renting, rather than buying, affords them the freedom to pick up and go.

Home prices and interest rates are already low. When credit loosens up and more potential homeowners can borrow the money for a mortgage, we'll see if this is a lasting trend.

Do you think the buyers will begin investing in homeownership as the economy improves?

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2 Comments
Karin Whitley
March 02, 2011 at 12:37 pm

Home ownership should not be looked at as an investment. It is where you live. Studies also show neighborhoods with high owner-occupant are better maintained and retain higher resale values. Not to mention the tax benefits of home ownership. In my area of Virginia, owning a home is a less expensive payment than a monthly rental payment. Most likely, we will continue to experience the short sale and foreclosure market for the next 3-7 years, depending on where you live in the US. This will continue to keep housing prices steady or a gradual increase, greatly depending on what happens to interest rates. The biggest rub of the housing market is that inflation is going up on everything including the products used to build and maintain a house but until our unemployment rates drop, wages begin to rise again and our economy and nation becomes stronger housing prices will not increase.

Nikki Smith
March 02, 2011 at 11:39 am

In some markets, home prices are low enough that an individual who can put down 20% may find a mortgage is roughly the same as rent. Even if the market drops some each year, that person is losing what she would have paid in rent anyway.